There are several types of mutual funds. This becomes very confusing for a new investor who is just introduced with the concept of mutual funds. With so many types, options and plans available for each category; the basket of mutual funds is quite broad.
Let us simplify Mutual Funds
Mutual Funds have two broad categories
Each category has multiple types
1. Types of Equity Funds-
Large cap, mid cap, small cap, diversified
2. Types of Debt Funds
Liquid fund, dynamic bond fund, Gilt fund, short term
Each fund type is available in following options
A. Growth Option
B. Dividend Option (it has payout and reinvestment variants.)
A mutual fund selected in combination of above three dimensions can be purchased through a distributor or directly from the mutual fund house commonly referred as Asset Management Company (AMC). They are referred as fund plans.
Regular Plan - purchased through a MF distributor
Direct Plan - purchased directly from AMC
Note: considering the significance of benefits of direct funds, some mutual fund distributors like Zerodha have started offering direct plans through their portals.
A mutual fund selected by deciding on combination of above category, type, option and plan; can be invested through following investment methods:-
1. Lump Sum investment
2. Systematic Investment Plan (SIP)
Let us discuss Mutual Fund classifications in detail
Mutual fund category
Debt funds are those funds which invest in money market instruments. Money market instruments include short term treasury bonds issued by central and state government, long term bonds by governments, corporate bonds issued by companies and short term lending to financial institutions. Interest rate fluctuations are observed in money market financial instruments, fund managers of debt mutual funds try to increase yield of their holding by trading on coupon rates.
Types of debt funds
Short term or liquid funds: investing in short term debt instruments. Because of short term fluctuations in interest rates are negligible. Interest rates of liquid funds are aligned with prevailing repo rates. They are most safe mutual fund type.
Long Term Bond Funds:
Dynamic Bond Funds:
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